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Enough has been said about the crypto currency Bitcoin, the technology behind it and its uses. We are not going to repeat the same here. The aim of this article is to analyse the legal framework that is governing bitcoin use, bitcoin websites and bitcoin businesses in India. Before we start we wish to make it clear that there is no dedicated law for bitcoin in India. Nevertheless, Perry4Law Law Firm would try to analyse the legality of Bitcoin from a strict techno legal perspective. Despite various articles and views, it is clear that use of Bitcoin by various stakeholders in India is primarily governed by the Information Technology Act, 2000 (IT Act 2000). Then there are financial and taxation laws that govern the money laundering, taxation and similar issues. While we have the IT Act 2000 in place yet the Reserve Bank of India (RBI) has miserably failed to provide a regulatory guidance regarding the financial and monetary aspects of bitcoin in India. Instead it preferred to choose the escape route and cautioned the users against use of bitcoin in India in 2013 due to their risks (pdf). From 2013 to 2016 RBI has done nothing to bring uniformity or clarity regarding use of bitcoin in India.

Meanwhile bitcoins websites faced regulatory scanner of Enforcement Directorate (ED). In fact, Seven Digital Cash LLP is already facing legal scrutiny for dealing in bitcoins in India. More details would be available only once ED completes its investigation in this regard. ED believes that bitcoins money can be used for hawala transactions and funding terror operations and this seems to be a legally plausible explanation as well.

RBI has clearly mentioned that there have been several media reports of the usage of virtual currencies (VCs) including bitcoins, for illicit and illegal activities in several jurisdictions. The absence of information of counterparties in such peer-to-peer anonymous/ pseudonymous systems could subject the users to unintentional breaches of anti-money laundering and combating the financing of terrorism (AML/CFT) laws. RBI has also stated that it is presently examining the issues associated with the usage, holding and trading of VCs under the extant legal and regulatory framework of the country, including Foreign Exchange and Payment Systems laws and regulations.

In the absence of a dedicated law, bitcoins are governed by many laws that are indirectly applicable to its dealings and transactions in India. For instance, the IT Act 2000 prescribes cyber law due diligence (pdf) in India and the Internet intermediary liability in India. These cyber laws due diligence and Internet Intermediary requirements squarely apply to use of bitcoins in India. Further, money laundering, foreign exchange and security dealing laws also apply to Bitcoins dealings and trading in India. Naturally, the bitcoins website owners and entrepreneurs must comply with Indian laws to stay legal.

Even the banks, payment gateways and online payment merchants, mobile payment vendors, etc supporting these bitcoin websites and businesses can be held liable for not following cyber law due diligence norms if they have blindly approved online payment mechanism and banking channel options to illegal and law breaking bitcoin websites. These banks and payment gateways can also be held liable for money laundering, FEMA violations and assisting in tax evasion. If such banks, payment gateways and online payment merchants have already approved such illegal and law breaking bitcoin websites in India, it is in their own interest to cancel such approval immediately. The banks etc must ask them to first comply with applicable techno legal compliances and then support their claims with a proper techno legal consultancy from a reputed law firm.

Some entrepreneurs have contended that since there is no law restricting use of bitcoin in India its use and dealing is legal in India. This is a wrong assumption that would lead to legal prosecution only. The reverse argument is equally applicable in such a situation i.e. since there is no law to deal or regulate bitcoin in India, its use in India is illegal. The real criteria is what we are doing with the bitcoin and how we are using the same. To make the situation simple and legal the bitcoin entrepreneurs must have techno legal compliance policies besides having proper legal documents covering their websites in the best possible techno legal manner.

Take an example in this regard. If a bitcoin website is allowing use of bitcoin for making illegal bets on online gambling websites, such a bitcoin website can be held liable for violating Indian laws. Similarly, if a bitcoin website allows transaction of bitcoin for illegal surgical abortions such website can be held liable for violating Indian laws. There are hundred of such examples where bitcoin website can be guilty of violating various laws of India. A sound techno legal compliance policy can avoid these violations and criminal prosecutions.

Perry4Law has analysed popular bitcoin websites of India and found them lacking a techno legal compliance criteria. We have also found that data retention and data preservation related compliances are also ignored by these websites. Even the Companies Act 2013 now mandates the maintenance and inspection of document in electronic form. Thus, bitcoin websites managed by companies registered under the Indian Companies Act 2013 (pdf) are required to comply with additional legal requirements.

There are many more techno legal issues that are ignored by the bitcoin websites of India that we cannot discuss through this post. If you are a bitcoin entrepreneur and you wish to make your bitcoin business and website techno legal compliant, please feel free to establish a client attorney relationship so that we can assist you.

Indian Government is presently engaged in making Digital India a success. Many good initiatives have already been taken under Digital India and its predecessor National E-Governance Plan (NeGP). After the Demonetisation process, Indian Government is also stressing upon grand usage of digital payments in India.

Perry4Law Organisation (P4LO) has published the Digital Payments and Cashless Economy Trends of India 2017 that has covered many crucial issues regarding use, adoption and safeguards for using digital payments in India. The year 2017 may see some significant steps in the direction of encouraging more and more use of digital payments. However, there would be many techno legal challenges that have to be tackled by Indian Government before this goal is achieved.

For instance, cyber security, data security, data protection, privacy safeguards, etc are some of the issues that are still vexing Indian Government. Digital payments that are insecure would be more trouble than relief. It would only increase cyber crimes and customers’ disputes in the long run.As on date, the mobile cyber security is a big challenge for Indian Government and various stakeholders. If mobile security is missing, there is little hope for secure mobile banking as well. Similarly, cyber security of banks in India is also not in a good shape. This is so even when the Reserve Bank of India (RBI) has prescribed a cyber security framework for banks of India.

Digital payments in these circumstances would be really challenging for the Indian Government. The most troublematic part would be use of Aadhaar Enabled Payment System (AEPS) that is not only highly insecure but would also amount to use of an “Unconstitutional Technology”. Cyber security, data security and privacy aspects of Aadhaar have not yet been resolved. It is not a good idea to use AEPS for any purpose, including digital payments purposes.

As we move towards a digital economy, we would face sophisticated and global cyber attacks and cyber crimes. Whether we like it or not, we are not prepared to deal with cyber attacks and cyber crimes. Cyber crimes investigation capabilities of Indian law enforcement agencies must be enhanced through techno legal trainings and skills development. As cyber attacks and cyber crimes are international in nature. It requires good techno legal training to trace, investigate and punish the cyber criminal.

Digital payments infrastructure of India needs to be robust and resilient from cyber security and cyber crimes perspective. Similarly, liability of banks and customers for cyber frauds and cyber thefts must be clearly specified by Indian Government. An effective dispute resolution procedure must also be established by Indian Government to resolve disputes arising out of digital payments.

Perry4Law Organisation (P4LO) hopes that digital payments would be safe, secure and civil liberties compliant in the year 2017. However, Indian Government must take pro active steps in this regard if it wishes digital payments to be successful in India.

National Judicial Data Grid (NJDG) of India is an initiative of Indian government and Indian judiciary to provide first hand information about pending cases in India. NJDG is primarily covering district courts and it may be extended to other courts as well. Indian courts are facing severe backlog of cases even after use of information and communication technologies (ICT). It may take many decades before this backlog would be removed.

Legal enablement of ICT systems in India is a crucial aspect that must be undertaken by Indian government on priority basis. National e-governance plan (NEGP) and digital India projects are working in this direction. However, we are still waiting for the establishment of first e-court of India. Till now we are only able to computerise some parts of administrative functions of judiciary and we need a full fledged e-court system.

Law firms play a crucial role in the society. One the one hand law firms help in maintaining law and order in the society and on the other hand they help in smooth conduct of business and commercial transactions. Law firms have a fiduciary relationship with their clients towards the information and documents the clients provide to the law firms. Under such fiduciary obligation, law firms are required to maintain strict privacy of the privileged communications between lawyers and clients.

If we analyse the recent cyber security trends, it is clear that cyber criminals have increased cyber attacks upon law firms to mine sensitive documents about future merger and acquisitions between big companies. There are also other crucial information and documents that are available to the law firms and stored at their computer systems and networks. If such computers and networks are breached, this can cause serious commercial and strategic loss to the companies owning such legal documents.

We believe that the year 2017 would test law firms with complicated cyber security challenges that most of them are not prepared for. Cyber security is a long term and continuous commitment and unless the culture of cyber security is essential part of law firm working, things would not change much.

Technology is changing the way legal services are provided these days. Some law firms have adopted legal case management systems while others have used automation mechanisms to reduce the work load and costs. Some are even trying their hands on artificial intelligence (AI).

Lawyers are always considered to be the last one to catch the train of information and communication technologies (ICT). Whether it is automation of legal services or use of contemporary concepts like artificial intelligence (AI), lawyers generally stick to their traditional methods.

However, things are going to change in the near future and lawyers and law firms must be prepared for the same. A gradual shift to ICT is what provides best results. The truth is that disruptive technologies would change the way legal services and legal process outsourcing (LPO) services would be provided in future.

The process of availing qualitative and world class techno legal services cannot be easier than this. No matter wherever you are located, just create a request and you would get the legal services. In order to help such stakeholders, PTLB has also launched a discussion forum known as PTLB LPO Discussion Forum.

We hope national and international stakeholders would fully utilise these platforms for availing techno legal services.

Electronic Courts (E-Courts) in India is a relatively new concept and this is the reason why there is lots of confusion and misinformation about e-courts of India. In India computerised courts are often confused with e-courts. But this is far from truth as mere computerization can never make a court an e-court.

So what exactly is an e-court? An e-court is established only when the administrative and judicial processes are so combined that everything is managed in an online environment. For instance, from the serving of a legal notice/process to final adjudication of the matter, everything must be managed using ICT and over the Internet. The infrastructure necessary to achieve this must not be located or established at the court’s premises otherwise the entire purpose is defeated.

The facilities of e-courts must be accessible from any part of the world and not tied up to the physical location of the concerned court premises. If an individual or lawyer has to visit the concerned court premise and then use the computerised facilities, this is no more useful than physical filing at the filing counter.

The fact remains that despite all glamorous conferences, catchy phrases and public announcements, we do not have even a single E-Court in India and there is not even a single case that has been filed, contested and finally adjudicated through an E-Court System in India till January 2017. Where those claimed E-Courts are and what cases they had adjudicated is still a big mystery. The truth is whether it is national e-governance plan (NEGP) or digital India project, e-courts are still a distant dream.

An e-court committee has been established by the Supreme Court of India but progress of e-courts in India remains very slow. Indian government is also struck at the second stage of e-courts that is computerisation stage only. The second stage of e-courts may still not be possible till 2019/2020 with the present speed. However, that is not relevant and what is relevant is that we should have a fully functional e-court in India now.

The Cyber Arbitration Trends in India 2017 by TLCEODRI have projected good uses of ODR in India in the year 2017. TLCEODRI has also launched a beta project that can be used for ODR, cyber arbitration and with necessary modifications for even e-courts purposes. It is covering techno legal ODR and cyber arbitration services for cyber frauds, e-commerce disputes, cyber contraventions, credit card frauds, cyber law due diligence, etc.

Open source software (OSS) and technologies are free to use subject to the minimal requirement of attribution. Open source community believes in sharing and growth of knowledge to as many people as possible. An open source software (OSS) creator usually grants the rights to study, change, and distribute the software and its source code to anyone and for any purpose.

OSS relies upon the concept of open collaboration where the knowledge of public at large is pooled to create a software/hardware/tool. This helps in creating a more reliable, robust and secure software/hardware/tool as the process involves utilisation of vast knowledge and testing capabilities of masses that a closed source software/hardware/tool cannot achieve.

Taxation and regulatory issues of e-commerce, startups and entrepreneurs are by and large uncertain and inconclusive. As on date, there is no uniform tax law that can be applied to e-commerce websites or Internet based businesses managed by startups and entrepreneurs.

In fact, Indian government has introduced some novel way to tax online businesses managed by foreign technology companies having no business establishments in India. For instance, according to the recent Indian Budget announcement, any person or entity that makes a payment exceeding Rs 1 lakh in a financial year to a non-resident technology company will now need to withhold 6% tax on the gross amount being paid as an equalisation levy.

For instance, if a person spends a sum of Rs. 2 lakh on online advertisement from Google in a single financial year, he has to withhold 6% tax on the gross amount being paid as an equalisation levy. This would help in taxing companies like Google that have been opposing imposition of such taxes in India for long.

Similarly, the provisions proposed under the new GST regulatory regime have significant tax implications for e-commerce companies and startups. The new rules will impact not only e-commerce businesses, but also every e-commerce vendor who must now compulsorily register.

According to the Indian Companies Act, 2013 and recent policy decisions of Indian Government, foreign companies and e-commerce portals would now be required to register in India and comply with Indian laws.

As far as Indian e-commerce players and startups are concerned, Indian Government has announced many benefits and concessions for the same to encourage the policies and projects like start up India, make in India, etc. These startups and entrepreneurs are demanding further exemptions and concessions from taxation requirements. Some incubators have even suggested for adequate tax incentives and financial assistance. The Department of Industrial Policy and Promotion (DIPP) has sought the approval of the expenditure finance committee of the finance ministry for setting up a credit guarantee fund. The proposed Rs 2,000-crore fund, a part of the corpus meant for the fund of funds, will provide up to 80 per cent risk cover for collateral-free credit being given by banks to start-ups.

As per media reports, in order to boost the government’s Startup India, Standup India movement, the DIPP is reportedly formulating a new set of tax concessions on employee stock options, unlisted securities and convertible instruments. The latest Union Budget is expected to be announced on February 1st, 2017. The DIPP has proposed that ESOPs for startups should be taxed at the time of sale, when they have a relatively greater liquidity to pay taxes and the instruments get a fair valuation. Also the DIPP has said that the period of long-term capital gains for unlisted securities should be reduced from the current limit of 24 months, owing to the fact that investing in startups is risky and subject to a higher rate of tax. A formal request stating the demand of increasing the tax holiday period for startups to seven years from three years has also been forwarded to the Ministry of Finance by DIPP. In March 2016, DIPP issued a uniform definition of the word startup. Under the definition, a budding entrepreneur with a turnover of less than $3.6 Mn (INR 25 Cr) can avail tax breaks and other benefits for a five-year period.